Later this morning the NBA will announce a broadcasting deal with the potential to change the sporting world as we know it. Disney's (DIS) ESPN and Time Warner's (TWX) Turner Broadcasting confirmed they will retain the rights to broadcast league games. Various sources are reporting the deal will be for 9 years at more than $2.5 billion per season. The current deal that doesn’t expire until summer 2016 pays the NBA $930 million a season.
Obviously the NBA and its players win huge. There were rumors that the new national TV contract could hit $2 billion a year but no one sane was thinking $24 billion for 9 seasons. Depending on how this deal gets phased in the NBA salary cap could be increased by as much as 30% from the $63 million per team last season.
The most significant part of the deal for consumers is the inclusion of a so-called “framework” for an over-the-top offering that would allow fans to watch games online without a cable or satellite television subscription. The NBA and ESPN will share ownership of the new product. The details will be announced at a later date.
Yes, finally at long last a major sports league has agreed to break the cable industry’s strangle hold on professional sports. It’s a long way off but look for this to jumpstart the rate at which cable subscribers start giving up their monthly television packages.
It takes enormous brass basketballs for Disney to be stepping outside the cable ecosystem. Disney’s magic kingdom isn’t a collection of theme parks but your cable bill. In 2013 ESPN alone accounted for more than 30% of Disney’s revenue and more than half of the entire company’s operating income. Cable companies are paying Disney more than $6 a month for ESPN and that number is going to be closer to $8 a month in the next couple years.
Disney shells out about $3 billion a year total to carry the NFL, NCAA football championship and NBA and it still made more than $6 billion in operating profit gouging cable companies, advertisers and, yes, ultimately you for the right to watch SportsCenter, Monday Night Football and the NBA Finals.
Sports are the only thing Americans watch in real time so they’re the only thing advertisers are willing to pay full fee to sponsor. They’re also the only reason most of us pay for cable television. In the existing NBA deal ESPN is paying $485 million a year and Time Warner picks up $445. We don’t have the split on the new contract yet but it’s safe to assume that ESPN is picking up more than half of the $1.7 billion increase in cost per year.
What ESPN gets in return is the right to lock Fox out of the picture on big time sports and a chance to be in front of the cord-cutting trend of the next decade. The NBA is leading the charge into the post cable world and Disney is blowing a huge hole in its castle wall on the bet that by 2025 most of us will be paying to watch our content in smaller bites rather than one giant cable offering.
Meanwhile the NFL which is still by far the most popular sport in the country is fighting with the FCC over antiquated Blackout rules and use of racist mascots. Pro football will gets a bigger slice of the national broadcasting fee pie, as much as $6 billion a year but the gap is shrinking.
One league is moving forward and the other is other trying to justify its existence. By the time this new NBA deal expires the way we consumer programming and the sports we watch may be very different.
